Canada’s main stock index rose to an eight-day high on Tuesday, as heavily weighed financial shares notched gains ahead of a Federal Reserve interest rate decision this week that could set the stage for lower borrowing costs in the United States.
The S&P/TSX composite index ended up 45.1 points, or 0.2%, at 22,824.67, its highest closing level since July 22.
In contrast, the S&P 500 and Nasdaq stumbled, weighed down by weak chip and megacap shares ahead of earnings from some of the heavyweight tech companies that have led gains for U.S. indexes this year.
“This is one of those days you can really see the difference in weighting between the U.S. and Canada,” Colin Cieszynski, chief market strategist at SIA Wealth Management. “Today you see tech stocks getting hammered and the TSX is actually doing ok.”
Technology accounts for 10% of the TSX’s market capitalization, much less than the 30% share accounted for by financials.
Bond investors expect the Fed to hold interest rates steady on Wednesday but signal that rate cuts are imminent.
The Bank of Canada has already begun an easing cycle. Traders in money markets over the past few days have been reassessing the odds that another Bank of Canada rate cut looms this September.
Implied interest rate probabilities in swaps markets now suggest nearly 93 per cent odds of another quarter point rate cut at the bank’s next policy meeting on Sept. 4, according to LSEG data.
Last Wednesday, the Bank of Canada cut its key overnight rate to 4.50 per cent. In the moments both before and after that decision, swaps market probabilities suggested the odds of whether there would be another cut come September was pretty much down to a coin flip. Those odds have risen sharply since.
Canada’s two-year bond yield, which is sensitive to central bank policy sentiment, Tuesday was at a two-year low of 3.53 per cent. Canada’s five-year yield, which heavily influences the fixed mortgage rate market, was at its lowest since December.
David Rosenberg, founder of Rosenberg Research, suggests the swaps repricing likely reflects market dynamics beyond Canada.
“It could well reflect the fact that commodity prices have entered a severe correction and following the tame PCE deflator numbers out of the U.S.,” he said in an email to the Globe and Mail.
The PCE, or personal-consumption expenditures price index, is the Federal Reserve’s preferred inflation gauge and came out on Friday for June. It rose 2.5 per cent from a year earlier, in line with market expectations but representing a slowdown from May’s rise of 2.6 per cent.
Meanwhile, many commodities have been in a downtrend in recent weeks. Copper prices are down about 20 per cent from their highs this spring, and oil about 14 per cent.
Financials on Tuesday rose 0.4%, while utilities, which is dominated by high-dividend paying companies that could particularly benefit from lower interest rates, added 0.6%.
Filo Corp was a standout in Toronto. Its shares surged 8.8% after Lundin Mining and global miner BHP Group reached a deal to jointly take over the company. Shares of Lundin Mining ended 2.6% lower.
Tilray Brands Inc shares climbed 7% after the cannabis firm reported upbeat fourth-quarter revenue.
On Wall Street, Microsoft fell 0.89% to US$422.92 ahead of its quarterly results. After the closing bell, the software maker dropped about 5% after reporting results that missed expectations for quarterly growth in its Azure cloud-computing service.
Chipmaker Nvidia, regarded as a prime beneficiary of potential AI growth and the year’s second best S&P 500 performer, tumbled 7.04% to $103.73, weighing on other chip stocks to pull the Philadelphia semiconductor index down 3.88%.
Other megacap names such as Apple, Amazon.com and Meta Platforms, are all due to report earnings this week.
“A lot of people are looking at artificial intelligence now and saying this is all great but I how do I make money on it,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.
“Financially the companies are probably doing quite well, but the question is what are you paying for this? These are not cheap stocks and so you need to go into these things with your eyes open.”
The Dow Jones Industrial Average rose 203.40 points, or 0.5%, to 40,743.33, the S&P 500 lost 27.10 points, or 0.5%, to 5,436.44 and the Nasdaq Composite lost 222.78 points, or 1.28%, to 17,147.42.
The small cap Russell 2000 gained 0.35% and the S&P value 500 index advanced 0.52%, buoyed by financials , which jumped 1.19% to outperform the broader market. This extended a recent rotation out of more expensive stocks as the market has solidified expectations the Federal Reserve will cut rates this year on signs of moderating inflation.
Several labor data releases are scheduled for this week, culminating in Friday’s government payrolls report. On Tuesday, a Job Openings and Labor Turnover Survey pointed to 8.18 million job openings in June, compared to economists’ expectation of 8 million.
Among single stocks, Procter & Gamble lost 4.84% at $161.70 after missing fourth-quarter sales expectations.
Merck plunged 9.81% to $115.25 after the drugmaker cut its annual profit forecast. CrowdStrike dropped 9.72% to $233.65 after a report that Delta Air Lines sought compensation from the cybersecurity firm and Microsoft for the carrier’s global cyber outage earlier this month.
Cybersecurity and cloud services company F5 surged 12.99% to $200.66 after forecasting fourth-quarter results above estimates.
Advancing issues outnumbered decliners by a 1.54-to-1 ratio on the NYSE. On the Nasdaq declining issues outnumbered advancers by a 1.16-to-1 ratio.
The S&P 500 posted 73 new 52-week highs and one new low while the Nasdaq Composite recorded 133 new highs and 126 new lows.
Volume on U.S. exchanges was 11.25 billion shares, compared with the 11.19 billion average for the full session over the last 20 trading days.
Reuters, Globe staff